Britannia Radio

The first below is, in reality, an answer to the Blanchflower report  
which I sent overnight (“A prophet for all seasons”) and of which I  
was highly critical !

The second item is the surprise news of the rise in inflation except  
for mortgages which are much lower than a year ago.   This news put  
the stock exchange into sharp reverse after yesterday’s rise and the  
continued rise today in early trading.

My own view is that the fear of deflation is justified but  
exaggerated and from my own talks in the City the real worry is the  
inevitable and severe inflation resulting from government policies  
with the only point in dispute being over timing.   I get the  
impression that it will come sooner than forecast.

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TELEGRAPH            24.3.09
1.Gordon Brown's profligacy blocks job creation
"Unemployment when young creates permanent scars, not temporary  
blemishes." So said the Bank of England's David Blanchflower on Monday.

    By Edmund Conway

As he rightly pointed out the cost of unemployment can be far greater  
if it falls most heavily on the young. More than 40pc of the jobless  
are aged below 25. Some 700,000 more people are due to join the  
workforce this year and their prospects are bleak. So too are the  
prospects for the public finances if this cohort is to stay on  
benefits for long-term unemployment.

Which is why his suggestions about a major splurge on job creation,  
in theory, makes sense. The problem, however, is that it is highly  
doubtful the UK can afford even a fraction of the £90bn he is  
suggesting. The public finances are on a precipice. Markets are  
already balking at the billions put aside to support the financial  
system; even before any giveaway the recession will push the deficit  
up to around 11pc of GDP next year, according to the IMF.

The main thing that distinguishes Britain from Iceland is that UK  
sovereign debt has retained its creditworthiness, for now. Gordon  
Brown left the Treasury's books in such a state that there simply is  
no room to accommodate a major fiscal splurge without running the  
risk of a crisis in government funding.

If that were to happen the Government would simply lose its ability  
to support the financial sector, or indeed any other part of the  
economy. This is perhaps the most profound indictment of Brown's  
profligacy: that it does not leave any room to mitigate the pain of  
recession
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2. UK staves off deflation as weak pound pushes up prices
Britain staved off deflation in February after a shock rise in the  
inflation caused by the weak pound pushing up the cost of imported  
food and rising fuel costs.

    By Telegraph Staff

The Consumer Prices Index (CPI), the government's preferred measure  
which is used in economic policy, rose unexpectedly to 3.2pc in  
February, official data showed.

Retail price inflation — which includes housing costs — fell from  
0.1pc in January to zero, mainly because of the fall in variable  
mortgage interest rates as the Bank of England cut rates to stimulate  
the economy. The move surprised economists, the majority of whom had  
expected RPI to fall below zero. The measure is still at its lowest  
since 1960.

The weakness of the pound could be responsible for the higher-than- 
expected CPI number, Bank of England Governor Mervyn King said in an  
explanatory letter to the Government, and reiterated he expects the  
measure to fall significantly during 2009.
"Much of the strength in the outturn appears to be concentrated in  
components where a large share of goods is imported," Mr King wrote  
in the letter.

Elaborating before the Treasury Select Committee, Mr King said: "With  
a 28pc fall in the exchange rate over 18 months, we clearly expected  
a good part of that to feed through to the domestic price level. What  
was unclear was precisely how much and at what speed it would come  
through. This was bound to have a significant impact on the price  
level. That was factored into our February forecast and I'm sure it  
will continue to come through in the months ahead."

Mr King has to write to the Government when inflation rises 1  
percentage point above its 2pc target.

The price of food and non-alcoholic drinks increased, as the cost of  
fresh vegetables rose because of poor harvests [caused by Global  
cooling -cs] in parts of Europe. Import prices were further hit by  
the decline of the pound against the euro.

There are concerns that if prices keep falling, Britain could face a  
prolonged period of deflation. Public sector pay is tied to the RPI  
and millions of state employees are likely to face pay freezes in the  
coming years because of the downward shift in prices.

Hetal Mehta, senior economic Adviser to the Ernst & Young ITEM Club,  
said, "It is surprising to see CPI inflation increasing when a sharp  
fall was widely expected. The weakness in sterling may be feeding  
through into higher prices, however as the economy continues to  
weaken, ITEM expects inflation to resume its sharp decline."

Tony Dolphin, Senior Economist at the Institute for Public Policy  
Research, said: “It is likely that deflation on the retail prices  
measure has only been delayed by a month. The main factor dragging it  
down is lower mortgage interest payments, which fell by 39.9pc over  
the year to February. These will record an even bigger fall over the  
year to March, following February’s cut in Bank Rate. By autumn,  
inflation could be as low as -3pc as a result of the recession, lower  
fuel prices and falling mortgage payments."